Divorce and Life Insurance

September 29, 2020

Divorce and Life Insurance

 

It may often be overlooked during the overwhelming period after the dissolution of a marriage, but the effects of divorce on life insurance and necessary changes to your policy should not be missed.

 

Life Insurance Changes and Divorce

 

As you start to navigate this new stage of life, it's important to make sure you focus on securing your financial health. If you have children or loved ones that you need to take care of, life insurance sufficiency is an important factor. Typically, with a life insurance policy during your marriage, you think about replacing income for your spouse, paying off debt, funding college for children, among other things.

 

Life Insurance Planning During the Divorce Process

 

Implementing life insurance changes is challenging during the process of a divorce, because nothing is finalized yet. You may not be able to make changes to beneficiaries or investments with your policies until the judge has signed off and given you an official divorce decree. However, the time before you receive the decree is still a great planning opportunity for you to take the time to re-evaluate what matters the most to you in life. Take time to re-evaluate your goals and priorities, as well as understand who you want to take care of now and in the future. Once the divorce has concluded, you can begin to make changes right away and implement your financial plan.

 

Key Considerations for Life Insurance After Divorce

 

When reviewing your life insurance needs after a divorce, here are some important factors you should consider.

  • Do you have children?
  • Do you have any other dependents who are financially impacted if you are no longer here? For example, caring for elderly parents or grandparents, or an adult sibling with special needs.
  • Do you have debt that needs to be paid, such as credit cards, student loans, auto loans and mortgages? Note that some loans, such as student loans, are forgiven if you pass away.

 

Life Insurance and Your Financial Asset Picture

 

You might feel like you have accumulated enough assets, such as retirement accounts and savings in the bank. However, those resources may not be sufficient to pay off debts that you owe and funeral costs when your estate is settled. Life insurance can be a valuable tool to help ease the cash flow in the interim for your family. It can also help leave behind a legacy to help pay for necessary life items need by those you love.

 

A Personal Life Insurance Consideration

As a mom, I recognize that your goals may be different than mine. When it comes to my children, if my day comes and I'm not able to be here to care for them there are certain things that are important to me. I want to make sure that they have safe cars that will get them home at night. I want to make sure that if they choose to get a college education, the cost is not prohibitive. If they choose to get married, I want to help pay for their weddings. Someday when they are a little older, I would like to give them each money toward a down payment on a house. Because of these goals, I carry life insurance and invest in retirement just as I advise my clients to, and like many of you, I’m saving for my children and periodically making sure I re-evaluate my financial plan to help ensure my children will be taken care of.

 

How Much Life Insurance is Enough?

You may not like my answer, but it truly depends on your own unique situation. For example, my boys are four, six and eight. When it comes to my life insurance, I have built-in a cost related to certain things that I'd like to fund while they are growing up, my own specific future financial goals and my desire to leave each of them a pool of money when they get to be 25, 30, and 35 years old. While I hope that I will outlive raising my children, none of us knows what the future holds and it's important to plan ahead.

 

The Importance of End-of-Life Planning

Another consideration related to life insurance, though not directly tied to it, is making sure you have completed your end-of-life planning. As a divorcee, you should designate a health care power-of-attorney and financial power of attorney and determine what will happen to the resources that you build up as you get older in your Will or legal documents. As a Financial Advisor, I do not provide legal advice, but I can help you build a financial plan and make sure that when you meet with your estate planning attorney, you've already gone through necessary difficult conversations. These include who would raise your children, who would handle the money, who has the power to make medical decisions for you, and even the decision to pull the plug, if necessary?

 

Moving Forward and Planning After Divorce

As you navigate this new stage of life, I encourage everyone to begin rebuilding their financial plan based on your own goals and priorities while you are working through the divorce. At the conclusion of the divorce, I encourage you to implement the steps to start working toward your “new normal” and reprioritize your finances. As someone who has lived through a divorce, I encourage you to show up every single day for yourself, and for your own goals and priorities. Some things in life are definitely unpleasant to work through, but having an advisor who's been through that stage of life can be helpful. I would be happy to help you work through this difficult time and find a new, positive future life on the other side with an actionable financial plan. Call me today at 605-306-3248 or email me at srandgaard@wradvisors.com to set up a time to discuss your life insurance and financial planning needs.

 

 

This is meant for educational purposes only.  It should not be considered investment advice, nor does it constitute a recommendation to take a particular course of action. Please consult with a financial professional regarding your personal situation prior to making any financial related decisions. (09/20)